standard guaranty insurance company exam report 12-31-17...temika latonia montford vice president...

EXAMINATION REPORT

OF

STANDARD GUARANTY INSURANCE COMPANY

AS OF

DECEMBER 31, 2017

ii

TABLE OF CONTENTS

SALUTATION .............................................................................................................................. 1

SUMMARY OF SIGNIFICANT FINDINGS ............................................................................ 3

COMPANY HISTORY ................................................................................................................ 3

CAPITALIZATION ................................................................................................................ 4

DIVIDENDS .......................................................................................................................... 4

MANAGEMENT AND CONTROL ........................................................................................... 5

DIRECTORS ......................................................................................................................... 5

COMMITTEES ...................................................................................................................... 6

CORPORATE RECORDS ....................................................................................................... 7

INSURANCE HOLDING COMPANY SYSTEM ........................................................................ 7

AGREEMENTS WITH AFFILIATES ....................................................................................... 9

TERRITORY AND PLAN OF OPERATION ......................................................................... 10

TERRITORY ....................................................................................................................... 10

PLAN OF OPERATION ........................................................................................................ 10

REINSURANCE ......................................................................................................................... 11

FINANCIAL STATEMENTS.................................................................................................... 13

STATEMENT OF ASSETS AND LIABILITIES ....................................................................... 14

STATEMENT OF INCOME .................................................................................................. 16

RECONCILIATION OF CAPITAL AND SURPLUS ................................................................. 17

ANALYSIS OF CHANGES IN FINANCIAL STATEMENTS RESULTING FROM THE

EXAMINATION ......................................................................................................................... 17

COMMENTS ON FINANCIAL STATEMENT ITEMS ........................................................ 17

SUBSEQUENT EVENTS ........................................................................................................... 18

SUMMARY OF RECOMMENDATIONS ............................................................................... 20

CONCLUSION ........................................................................................................................... 21

SALUTATION

May 20, 2019 Honorable Trinidad Navarro Commissioner of Insurance Delaware Department of Insurance Rodney Building 841 Silver Lake Boulevard Dover, Delaware 19904

Commissioner:

In compliance with instructions and pursuant to statutory provisions contained in Exam

Authority No. 18.016, dated March 14, 2018, an examination has been made of the affairs,

financial condition and management of

STANDARD GUARANTY INSURANCE COMPANY

hereinafter referred to as the Company or SGIC. SGIC was incorporated under the laws of the

State of Delaware as a stock company with its statutory home office located at 251 Little Falls

Drive, Wilmington, Delaware 19808. The examination was conducted at the main

administrative offices of the Company, located at 11222 Quail Roost Drive, Miami, FL 33157.

The report of examination thereon is respectfully submitted.

SCOPE OF EXAMINATION

We have performed our examination of SGIC as part of a multi-state coordinated

examination. The last examination was conducted as of December 31, 2013 by the Delaware

Department of Insurance (Department). This examination covers the four-year period from

January 1, 2014 through December 31, 2017. The examination was conducted concurrently with

the examinations of other insurance entities within the Assurant, Inc. Group (Assurant Group),

Standard Guaranty Insurance Company

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including: American Security Insurance Company (ASIC), American Bankers Insurance

Company of Florida (ABIC), Reliable Lloyds Insurance Company (RLIC), Voyager Indemnity

Insurance Company (VIIC), American Bankers Life Assurance Company of Florida (ABLAC),

American Memorial Life Insurance Company (AMLIC), John Alden Life Insurance Company

(JALIC), Union Security Insurance Company (USIC), and Union Security Life Insurance

Company of New York (USLICONY). The State of Delaware was the assigned lead state by the

National Association of Insurance Commissioners (NAIC). To the fullest extent, the efforts,

resources, project material and findings were coordinated and made available to all examination

participants. Separate reports of examination were filed for each company.

We conducted our examination in accordance with the NAIC Financial Condition

Examiners Handbook (Handbook). The NAIC Handbook requires that we plan and perform the

examination to evaluate the financial condition, assess corporate governance, identify current

and prospective risks of the company and evaluate system controls and procedures used to

mitigate those risks. An examination also includes identifying and evaluating significant risks

that could cause an insurer’s surplus to be materially misstated both currently and prospectively.

All accounts and activities of the Company were considered in accordance with the risk-

focused examination process. This may include assessing significant estimates made by

management and evaluating management’s compliance with Statutory Accounting Principles.

The examination does not attest to the fair presentation of the financial statements included

herein. If, during the course of the examination, an adjustment is identified, the impact of such

adjustment will be documented separately following the Company’s financial statements.

This examination report includes significant findings of fact, in accordance with 18 Del.

C. § 321, and general information about the insurer and its financial condition. There may be


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other items identified during the examination that, due to their nature (e.g. subjective

conclusions, proprietary information, etc.), are not included within the examination report but

separately communicated to other regulators and/or the Company.

During the course of this examination, consideration was given to work performed by the

Company’s external accounting firm, PricewaterhouseCoopers, LLP (PwC). Certain auditor

work papers of the 2017 audit of the Company have been incorporated into the work papers of

the examiners and have been utilized in determining the scope, areas of emphasis in conducting

the examination and in the area of risk mitigation and substantive testing.

SUMMARY OF SIGNIFICANT FINDINGS

There were no significant findings or material changes in financial statements as a result

of this examination.

COMPANY HISTORY

On January 1, 2004, the Company was an indirect wholly-owned subsidiary of Fortis,

Inc., domiciled in the United States, which itself was an indirect, wholly-owned subsidiary of

Fortis N.V. of the Netherlands and Fortis SA/NV of Belgium (collectively Fortis), through their

affiliates, including their wholly owned subsidiary, Fortis Insurance N.V.

On February 5, 2004, Fortis sold approximately 64% of its ownership in Fortis, Inc. via

Initial Public Offering (IPO) and retained approximately 36% of its ownership. In connection

with the IPO, Fortis, Inc. was merged into Assurant, Inc. (Assurant), a Delaware corporation,

which was formed solely for the re-domestication of Fortis, Inc. After the merger, Assurant

became the successor to the business, operations and obligations of Fortis, Inc. Further, Fortis

transferred their ownership of Assurant’s stock into their wholly owned subsidiary, Fortis

Insurance N.V.


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On January 21, 2005, Fortis owned approximately 36% (50,199,130 shares) of Assurant

based on the number of shares outstanding that day. In a secondary offering on that same day,

Fortis sold 20% of its interest in Assurant and concurrently, sold mandatorily exchangeable

bonds for its remaining interest.

The Company’s immediate parent is ASIC, a Delaware domestic insurance company,

which was examined concurrently with this examination.

Capitalization

The Company’s amended Articles of Incorporation authorizes the issuance of one-

thousand seventy-five shares of common stock with a $3,300 par value. As of December 31,

2017, all common shares were issued and outstanding totaling $3,547,500. All outstanding

common shares of the Company are owned by its parent, ASIC. As of December 31, 2017, the

Company reported gross paid in and contributed surplus of $33,339,575.

Dividends

The Company’s Board of Directors (Board) approved the following dividends during the

exam period:

Year Dividends2014 15,000,000$ 2015 60,000,000$ 1

2016 10,000,000$ 2

2017 35,000,000$ 3

(1) The Company paid extraordinary dividends totaling $54,264,108 in 2015. (2) The Company paid extraordinary dividends totaling $10,000,000 in 2016. (3) The Company paid extraordinary dividends totaling $7,626,580 in 2017.

All dividends were approved in the Board minutes and proper filings were made to the

Department for extraordinary dividends.


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MANAGEMENT AND CONTROL

Directors

Pursuant to the general Corporation Laws of the State of Delaware, as implemented by

the Company's Articles of Incorporation and bylaws, the property, business and affairs of the

Company shall be managed by a Board. The amended and restated bylaws require that the

Board consist of not less than seven (7) nor more than fifteen (15) members, the precise number

to be fixed from time to time by resolution of the stockholders, to be chosen by the stockholders

at their annual meeting.

The Directors are elected annually by the stockholder and hold office until the next

annual election and until their successors are elected and qualify.

As of December 31, 2017, the members of the Board, together with their principal

business affiliations, were as follows:

Name and Location Principal Occupation Rebekah Susan Biondo Miami, Florida

Senior Vice President, Financial Officer Assurant, Inc.

John August Frobose Atlanta, Georgia

President, Lending Solutions Global Home

Robbie Harrington Atlanta, Georgia

Vice President, Managing Attorney Assurant, Inc.

Julia Mercedes Hix Miami, Florida

Vice President, Regulatory Compliance Assurant, Inc.

Ivan Carlos Lopez-Morales Atlanta, Georgia

President, Assistance and Financial Services Assurant, Inc.

Katharine Ann McDonald Miami, Florida

Executive Vice President, Assurant, Inc.

Gary Turner (1) Atlanta, Georgia

Senior Vice President, Operations and Services Admin Global Home


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(1) Effective March 4, 2019, Mr. Gary Turner was removed as Director of the Company and left Assurant. Effective March 28, 2019, Mr. Garrett Hoyt Hale, Senior Vice President, Operations, was appointed as a Director of the Company.

Committees

Article III of the amended bylaws states that the Board may appoint from among its members

an Executive Committee, an Investment Committee, an Audit Committee and any Other

Committees that the Board deems desirable.

As of December 31, 2017, the Company had not established a separate Executive,

Investment, Audit or Other Committees; however, the Board had designated the Executive,

Investment, and Audit Committees of Assurant as the committees of the Company.

Officers

Article IV of the amended and restated bylaws state that the Company’s executive

officers shall consist of a President, one or more Vice Presidents, a Secretary, and a Treasurer,

and may include one or more Assistant Secretaries and one or more Assistant Treasurers. Other

officers may be appointed, all of whom shall be elected by the Board and who shall hold office

until their successors are elected and qualified. The Chairman of the Board and the President

shall be chosen from among the directors of the Corporation and may hold such offices so long

as they continue to be directors. The President shall be the Chairman of the Board. No other

officers need be a director.

As of December 31, 2017, the Company’s principal officers and their respective titles

were as follows:

Name Principal Occupation John August Frobose President Jeannie Amy Aragon-Cruz Secretary Beech Hargis Turner Treasurer, Vice President Eduardo Arthur Michael Campbell

Senior Vice President Senior Vice President

Manuel Jose Becerra Senior Vice President


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Garrett Hoyt Hale Senior Vice President Julia Mercedes Hix Senior Vice President Ivan Carlos Lopez-Morales Senior Vice President Katharine Ann McDonald Senior Vice President Keith Roland Meier Senior Vice President Gary Louis Lau Vice President Temika LaTonia Montford Vice President Gregory Joseph DeChurch General Counsel Jeffrey Alan Lamy Appointed Actuary

The Company maintains a formal written Code of Ethics, which sets out minimum

standards of ethical conduct that applies to all employees, officers and directors. Incorporated

into the Code of Ethics is a conflict of interest policy. Pursuant to the policy, conflicts of interest

are to be promptly reported in writing to the General Counsel. Annual acknowledgment is

required documenting that conflicts of interest do not exist.

In accordance with the Department Examination Handbook, Section 12, a review of

biographies and inquiries with Management noted that there was no indication of any criminal

conviction of officers, directors or key employees of the Company.

Corporate Records

The recorded minutes of the shareholder and Board were reviewed for the period under

examination. The recorded minutes of the Board adequately documented its meetings and

approval of Company transactions and events including approval of investment transactions in

accordance with 18 Del. C. §1304. In addition, review of Company files indicated that written

correspondence was submitted to the Department with regards to the changes in officers and

directors during the period under examination in compliance with 18 Del. C. §4919.

Insurance Holding Company System

The Company is a member of an insurance holding company system as defined in 18 Del.

C. §5001 of the Delaware Insurance Code. The Company’s Holding Company Registration


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Statements were timely filed with the Department for the years under examination. The

Company is a wholly-owned subsidiary of ASIC, which is a wholly-owned subsidiary of

Interfinancial, Inc., which is a wholly-owned subsidiary of Assurant. Assurant’s common stock

is publicly traded on the New York Stock Exchange under the ticker symbol AIZ. The largest

shareholder of AIZ is The Vanguard Group, Inc., ultimate parent of the Assurant organization.

Organization Chart

An abbreviated organizational chart of the Assurant holding company system as of

December 31, 2017, is as follows:

Company Domicile % own The Vanguard Group, Inc. (1) Assurant, Inc. Delaware 100% Union Security Life Insurance Company of New York New York 100% Interfinancial, Inc. Georgia 100% American Security Insurance Company Delaware 100% Standard Guaranty Insurance Company Delaware 100% American Memorial Life Insurance Company South Dakota 100% John Alden Life Insurance Company Wisconsin 100% Union Security Insurance Company Kansas 100% Time Insurance Company (2) Wisconsin 100% American Bankers Insurance Group, Inc. Florida 100% ABI International Cayman Islands 100% Protection Holding Cayman Cayman Islands 72% Assurant International Division Limited Malta 99% Assurant Solutions Holdings Puerto Rico, Inc. Puerto Rico 100% Caribbean American Property Insurance Company Puerto Rico 74.33% Caribbean American Life Assurance Company. Puerto Rico 100% Caribbean American Property Insurance Company Puerto Rico 25.67% American Bankers Insurance Company of Florida Florida 100% American Bankers General Agency, Inc. Texas 100% Reliable Lloyds Insurance Company (3) Texas 100% American Bankers Life Assurance Company of Florida Florida 100% Voyager Group, Inc. Florida 100% Voyager Indemnity Insurance Company Georgia 100%

(1) Disclosed on the filed 2017 Holding Company Registration Statement, Vanguard owns 11.11% of the 52,475,408 common shares of Assurant as of February 12, 2018, making it an ultimate controlling entity of the Company. Vanguard filed a disclaimer of control/affiliation with the Department relating to the control of the Company. The Department accepted and approved Vanguard’s disclaimer of control/affiliation.

(2) Time Insurance Company subsequently acquired from Assurant by Haven Holdings on December 3, 2018.


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(3) Controlled by American Bankers General Agency, Inc. through a management agreement.

Agreements with Affiliates

Intercompany Services & Payment Intermediary Agreements

Effective February 1, 2017, the Company entered into an Intermediary Services &

Payment Intermediary Agreement (ISPIA) between the Company, ASIC and Green Tree

Insurance Agency Inc. Pursuant to the terms of the agreement, the parties each expend costs

and generate expenses in the ordinary course of their business and this agreement sets forth

their duties and obligations to each other and the reimbursement for the cost of services and

amounts expended on behalf of or for the benefit of the other.

Sale of Assets Agreement

Effective June 13, 2014, the Company entered into a Sale of Assets Agreement with

ASIC, whereby the Company agreed to sell, and ASIC agreed to buy Assets with a purchase

price of $20,442,555 to be allocated among the purchased assets. ASIC paid the purchase

price in full.

Amended and Restated Intercompany Tax Allocation Agreement

The Company files a consolidated federal income tax return and uses the method of

allocation, which is guided by the written agreement. Within the agreement, the allocation is

based on a separate return and the calculations are analyzed with focus and concern on the

current credit for net losses. The intercompany tax balances are settled within thirty (30)

days of the filing of the consolidated federal income tax return. The Tax Allocation

Agreement was amended and restated for a third time effective January 1, 2016 to change the

assignability and manner of settlement. The Company paid $10,924,328 in 2017 under this

agreement.


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Other Intercompany Agreements

The following agreements became effective prior to the examination period and remained

in-force as of December 31, 2017:

Management Agreement dated January 1, 1994, between the Company and Assurant. Investment Management Agreement dated January 1, 1995, between the Company and

Assurant. Management Agreement dated January 1, 2002, between the Company and ASIC. Affiliate Services Agreement dated December 31, 2007, between the Company and

ASIC. General Agency Agreement dated May 1, 2006, between the Company and ASIC. General Agency Agreement dated December 31, 2008, between the Company and

Insureco Agency. General Agency Agreement dated October 1, 2008, between the Company and Signal LP. Prefunding Payroll Agreement effective in 2008, between the Company and Assurant. ISPIA dated January 1, 2008, between the Company and ABIC. ISPIA dated December 31, 2008, between the Company and ABLAC. Allocation Agreement dated January 1, 2008, between the Company and ASIC.

Amounts paid by SGIC under the above agreements during 2017 were ($194,783,339) and

amounts received by related parties amounted to $246,800.

TERRITORY AND PLAN OF OPERATION

Territory

As of December 31, 2017, the Company is licensed and/or authorized to transact business

in forty-two states and the District of Columbia and is eligible to write surplus lines in the State

of Texas.

For the year ended December 31, 2017, the Company wrote approximately 29.8% of its

business in the jurisdictions of Illinois (8.8%), Georgia (7.9%), North Carolina (7.1%) and Ohio

(6.1%).

Plan of Operation

The Company is authorized to write the following lines of business: fire and allied lines,

marine, transportation, property and casualty, theft and burglary, leakage and fire extinguisher


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equipment, liability, fidelity, surety and guaranty bonds, all forms of motor vehicle and aircraft

insurance, credit insurance, and accident and health insurance.

The Company’s principal products protect the collateral of financial institution loans and

their revolving credit balances, or the institution loan customer from property and casualty losses

arising from fire, windstorm, loss of income, contractual liability and auto physical damage.

Business is written by banks and finance companies located throughout the United States. The

Company has no branch offices. The Company has one corporate agent that is an affiliate,

Insureco. Insureco procures hazard insurance (lender-placed coverage) for various financial

institutions on the Company’s paper, collects premium payments, deducts commissions due and

remits the net amounts to the Company. As of December 31, 2017, the Company had

approximately 43 corporate distributors and 520 individual agents and brokers.

REINSURANCE

The Company’s reinsurance activities are performed within the various business

segments and to some extent at the corporate level especially regarding coverage against

catastrophic events. The Company utilizes reinsurance for loss protection and capital

management, business dispositions and, in the Assurant Global Lifestyle and Assurant Global

Housing segments, insured risk and profit sharing. In addition, the Company has utilized ceded

reinsurance contracts to exit certain businesses that no longer fit into its business model or

strategic plans. The following is a brief description of the reinsurance activities:

Assumed

The Company reported no assumed reinsurance activities in Schedule F in its 2017

Annual Statement.


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Ceded (Other than Catastrophe)

The following schedule demonstrates the extent of the Company’s ceded reinsurance

activities:

Reinsurance Premiums

Ceded

Paid LossesCeded Loss

Reserves Net AmountRecoverable

Affiliates – Authorized $ 177,787,000 $ 6,699,000 $ 37,283,000 $134,550,000Affiliates – Unauthorized -0- -0- -0- -0-Unaffiliated – Authorized 2,246,000 249,000 905,000 1,331,000Unaffiliated – Unauthorized 9,566,000 551,000 2,028,000 2,987,000Certified 57,000 4,000 8,000 23,000 $189,656,000 $ 7,503,000 $ 40,224,000 $138,891,000

A majority of the Company’s ceded reinsurance is related to its intercompany cession to

its affiliate, ASIC. In addition, other than its catastrophe program, the Company’s ceded

business was related to agreements to reinsure premiums generated by certain clients’ exposure

back to those clients’ own captive insurance companies, or to reinsurance subsidiaries in which

they have an ownership interest. This is accomplished through the use of generally standard

quota share reinsurance agreements with the various captives. The Company derives servicing

income from processing and other service fees received from these clients. These activities are

generally managed within the Assurant Global Lifestyle and Assurant Global Housing business

segments.

Catastrophe Reinsurance – Assurant, Inc.

Due to the nature and geographic location of loss exposures related to several product lines

(such as homeowners, manufactured housing, and other property policies) that exposes Assurant

Group to possibly extreme catastrophe losses, it obtains reinsurance coverage to protect the

capital of the organization and to mitigate earnings volatility. This exposure is most significant

in the Global Housing business segment, to a lesser degree in the Global Lifestyle business

segment, and some minor exposures are covered in other segments. The catastrophe reinsurance


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activity is generally managed at the corporate Assurant Group level and affords protection across

the various affected business segments up to a 174-year event or $1,155,000,000 (net of Florida

Hurricane Catastrophe Fund cover). The primary Assurant Group corporate catastrophe

reinsurance is outlined as follows:

Limit Retention Details Assurant Retention (1) $ - $ 125 million Group Retention Layer 1 45 million 125 million Layer placed 95.25% Layer 2 90 million 170 million Layer placed 100% Layer 3 180 million 260 million Layer placed 84% Layer 4 265 million 440 million Layer placed 84% Layer 5 450 million 705 million Layer placed 84% Stretch Layer (2) 895 million 260 million Layer placed 16%

(1) All layers function on a cascading basis down to the $125M retention level, thus, after any layer is exhausted, reinstated, and exhausted again, higher layers will cascade down such that the company’s retention level on further events remains $125M.

(2) The stretch layer is purchased on a two-year multiyear basis.

FINANCIAL STATEMENTS

The following financial statements, as reported and filed by the Company with the

Department, are reflected in the following:

Statement of Assets and Liabilities as of December 31, 2017 Statement of Income for the year ended December 31, 2017 Reconciliation of Capital and Surplus for the Period from the Prior Examination as of

December 31, 2013 to December 31, 2017


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Statement of Assets and Liabilities As of December 31, 2017

AssetsNon admitted

AssetsNet Admitted

Assets Notes

Bonds $ 206,307,974 $ 206,307,974

Preferred stocks 16,350,714 16,350,714 Common stocks 227,287 227,287 First liens 2,856,817 2,856,817 Cash (460,092) (460,092)

Other invested assets 30,401,439 30,401,439

Receivables for securities 1,549,503 1,549,503

Subtotals, cash and invested assets $ 257,233,642 $ - $ 257,233,642

Investment income due and accrued 1,711,305 1,711,305 Uncollected premiums and agents' balances in the course of collection

17,912 17,912

Amounts recoverable from reinsurers 7,502,744 7,502,744

Net deferred tax asset 4,888,288 4,888,288 Receivable from parent, subsidiaries and affiliates

42,538,358 42,538,358

Premium tax recoverable 512,870 512,870 Accounts receivable other 40,065 40,065 Commissions and fees receivable 5,399 5,399 - Totals $ 314,450,583 $ 5,399 $ 314,445,184


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NotesLosses $ 37,157,077 1Reinsurance payable on paid losses and LAE - Loss adjustment expenses 3,736,710 1Commissions payable, contingent commissions 264,757 Other expenses 107 Taxes, licenses and fees 3,282,369 Current federal and foreign income taxes 3,036,004 Unearned premiums 97,567,821 Ceded reinsurance premiums payable 6,557,445 Funds held by company under reinsurance treaties 3,417,699 Amounts withheld or retained by company for account of others - Remittances and items not allocated 77,662 Provisions for reinsurance 28,000 Payable to parent, subsidiaries, and affiliates 20,938,392 Payable for securities - Checks pending escheat 4,530,357 Unearned ceding fees 4,085,452 Agents' credit balances 2,076 Other liabilities 268 Total liabilities $ 184,682,196

Common capital stock 3,547,500 Gross paid in and contributed surplus 33,339,575 Unassigned funds (surplus) 92,875,913 Surplus as regards policyholders $ 129,762,988 Totals $ 314,445,184


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Statement of Income For the Year Ended December 31, 2017

Notes

Premiums earned 197,436,345$ Losses incurred 70,234,592$ Loss adjustment expenses incurred 9,213,971 Other underwriting expenses incurred 105,418,013 Total underwriting deductions 184,866,576$ Net underwriting gain (loss) 12,569,769$ Net investment income earned 12,687,483 Net realized capital gains or (losses) 213,450 Net investment gain (loss) 12,900,933$ Net gain (loss) from agents' or premiums balances charged off -$ Finance and service charges not included in premiums 2,645 Fee income 13,454,398 Fines and penalties (438,248) Loss on disposal of fixed assets (2,194) Administrative Fees 2,167 Total other income 13,018,768$ Net income after dividends to policyholders 38,489,470$ Dividends to policyholders - Net income, after dividends to policyholders 38,489,470$ Federal and foreign income taxes incurred 9,954,450 Net income 28,535,020$ Surplus as regards policyholders, December 31, 2016 143,311,833$ Net income (losses) 28,535,020$ Change in net unrealized capital gains (losses) 394,567 Change in net deferred income tax (6,300,545) Change in non-admitted assets (4,887) Change in provision for reinsurance 62,000 Dividends to stockholders (35,000,000) Correction of errors (1,235,000) Net change in capital and surplus for the year (13,548,845)$ Surplus as regards policyholders, December 31, 2017 129,762,988$


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Reconciliation of Capital and Surplus For the Period from the Prior Examination

As of December 31, 2013, to December 31, 2017

Correction of Errors

Common Capital Stock

Gross Paid-in and Contributed Surplus

Unassigned Surplus Total

12/31/13 3,547,500 33,339,575 113,987,792 150,874,867 12/31/14 1 9,857,696 9,857,696 12/31/15 1 (34,478,170) (34,478,170) 12/31/16 2 (2,450,215) 19,507,655 17,057,440 12/31/17 2 (1,235,000) (12,313,845) (13,548,845)

(3,685,215)$ 3,547,500$ 33,339,575$ 96,561,128$ 129,762,988$

(1) Represents net income, change in unrealized capital gains (losses), change in unrealized foreign exchange

gain (losses), change in net deferred income tax, change in non-admitted assets, change in provisions for reinsurance, and dividends paid.

(2) Correction of errors due to IT related expenses not properly recorded pertaining to a review of lender-placed insurance products, and recording of a settlement with several states related to a multi-state market conduct exam in 2016.

ANALYSIS OF CHANGES IN FINANCIAL STATEMENTS RESULTING FROM THE

EXAMINATION There were no changes made to the Financial Statements as a result of this Examination.

COMMENTS ON FINANCIAL STATEMENT ITEMS

Note 1: Losses Loss Adjustment Expenses (LAE)

$37,157,077$ 3,736,710

In order for the examination team to gain an adequate comfort level with the Company’s

losses and LAE reserve estimates, the Department retained the actuarial services of INS

Consultants (INS) to perform a risk-focused review of the Company’s reserving and pricing

activities. Certain risks within the reserving processes required Phase 5 substantive test work.

Conversely, pricing risks were mitigated and therefore did not require any Phase 5 substantive

test work.


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Based on the procedures performed and results obtained by INS, the examination team

obtained sufficient evidence to support the conclusion that the Company’s net loss and LAE

reserves are reasonably stated as of December 31, 2017.

SUBSEQUENT EVENTS

The following material subsequent events occurred, requiring disclosure in this

examination report.

Acquisition of The Warranty Group from TPG Capital by Assurant, Inc.:

On October 17, 2017, Assurant, Inc. entered into an Agreement and Plan of Merger (the

Original Merger Agreement), with: TWG Holdings Limited, a Bermuda limited company and

portfolio company of TPG Capital (TWG Holdings, and together with its subsidiaries, including

TWG); TWG Re, Ltd., a corporation incorporated in the Cayman Islands (TWG Re); and Arbor

Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of TWG

Holdings (TWG Merger Sub). Under the terms of the Original Merger Agreement and subject to

the satisfaction or waiver of the conditions therein, Assurant and TWG would have combined

their businesses through a transaction in which TWG Merger Sub would have merged with and

into Assurant, with Assurant continuing as the surviving corporation and a wholly owned

subsidiary of TWG Holdings. On January 8, 2018, Assurant entered into an Amended and

Restated Agreement and Plan of Merger (the A&R Merger Agreement) with: TWG Holdings;

TWG Re; TWG Merger Sub; and Spartan Merger Sub, Ltd., a Bermuda exempted limited

company and direct wholly owned subsidiary of Assurant (Merger Sub), which amended and

restated in its entirety the Original Merger Agreement. Under the terms of the A&R Merger

Agreement and subject to the satisfaction or waiver of the conditions therein, in lieu of the

transactions contemplated by the Original Merger Agreement, Assurant would acquire TWG


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Holdings through a transaction in which Merger Sub would merge with and into TWG Holdings,

with TWG Holdings continuing as the surviving corporation and a wholly owned subsidiary of

Assurant. On May 31, 2018, pursuant to the terms of the A&R Merger Agreement, Assurant

completed its acquisition of TWG from TPG Capital for a total enterprise value of approximately

$2.5 billion.

Intercompany Agreements

Subsequent to the period under examination, the Company entered into two new

intercompany agreements as follows:

Intercompany Services and Payment Intermediary Agreement (ASIC, SGIC and TrackSure Insurance Agency, Inc.)

Effective July 1, 2018, the Company entered into an ISPIA with ASIC and TrackSure

Insurance Agency, Inc. Pursuant to the terms of the agreement, the parties each expend costs

and generate expenses in the ordinary course of their business and this agreement sets forth their

duties and obligations to each other and the reimbursement for the cost of services and amounts

expended on behalf of or for the benefit of the other.

Intercompany Services and Payment Intermediary Agreement (ASIC, SGIC, Assurant New Ventures, I.Q. Data International, TS Holdings, and Shipassurance Insurance Services)

Effective August 1, 2018, the Company entered into an ISPIA with ASIC and

Shipassurance Insurance Services, Inc., and other affiliates. Pursuant to the terms of the

agreement, the parties each expend costs and generate expenses in the ordinary course of their

business and this agreement sets forth their duties and obligations to each other and the

reimbursement for the cost of services and amounts expended on behalf of or for the benefit of

the other.


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Dividend Payment

On November 30, 2018, ASIC submitted a request to pay a $7 million dividend to its

parent company on December 31, 2018. The Department approved the payment on December 5,

2018.

Reserves Release

As of December 31, 2018, the Company released $7.851 million of net loss and LAE

reserves for accident years 2017 and prior, which is 19.2% of December 31, 2017, net Annual

Statement reserves. This release of reserves was based on additional data through December 31,

2018.

SUMMARY OF RECOMMENDATIONS

There were no recommendations as a result of this examination.


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CONCLUSION

The assistance and cooperation of examiners representing the states on the coordinated

examination is acknowledged. In addition, the assistance of the consulting actuarial firm, INS,

the consulting information systems specialist firm, INS Services, Inc., the Company’s outside

audit firm, PwC, and the Company’s management and staff was appreciated and is

acknowledged.

Respectfully submitted,

_______________________________________ Keith E. Misenheimer, CFE, ALMI, CFE, ARM Examiner In-Charge State of Delaware

_______________________________________ Steve E. Guest, CFE, CPA, ACI Supervising Examiner State of Delaware

standard guaranty insurance company exam report 12-31-17...temika latonia montford vice president...

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